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Disclosure Initiative — Subsidiaries that are SMEs

Date recorded:

Cover Paper (Agenda Paper 31)

Background

The objective of the project is to develop an IFRS Standard (reduced disclosure IFRS Standard) that will permit subsidiaries that are small and medium-sized entities (SMEs) to apply IFRS Standards but with reduced disclosure requirements.

At this meeting, the Board discussed further matters arising from the staff’s analysis of adaptations to the reduced disclosure requirements and the Board members' review under the following papers:

Disclosure about cash-generating units containing goodwill and intangible assets with indefinite useful lives (Agenda Paper 31A)

This paper asked the Board whether and, if so, which disclosure requirements should be proposed in a possible reduced-disclosure IFRS Standard for cashgenerating units containing goodwill or intangible assets with indefinite useful lives.

Discussion and voting

The staff recommended that some of the disclosure requirements in IAS 36:134-135 be included in the proposed reduced-disclosure IFRS Standard. This is because of the differences in how goodwill or intangible assets are accounted for when applying IFRS Standards and the IFRS for SMEs Standard.

Board members supported the staff recommendation specifically on the measurement differences. The disclosures will provide a more meaningful and relevant information to the users of the financial statements.

All members of the Board voted in favour of all of the staff’s recommendation in the paper.

Scope of the reduced-disclosure IFRS Standard (Agenda Paper 31B)

This paper examined the scope of the proposed reduced disclosure IFRS Standard and whether the scope should remain subsidiaries that are SMEs or should be expanded to a wider group of entities and, if so, which entities.

Discussion and voting

The staff recommended that the scope of the proposed reduced-disclosure IFRS Standard should be restricted to subsidiaries that are SMEs and that the Board consults on widening the scope of the proposed Standard.

The argument in favour of extending the scope was to reduce the costs for subsidiaries with parents presenting consolidated financial statements. Permitting the reduced-disclosure IFRS Standards to be applied by all SMEs will address this concern.

Some members of the Board have expressed their concern on widening the scope. Permitting all SMEs to apply the reduced-disclosure IFRS Standard might result in some lenders requiring that the reduced-disclosure IFRS Standard be applied by an SME because it is perceived to be better than the IFRS for SMEs Standard.

When asked to vote, 11 out of 13 Board members voted in favour of the staff’s recommendation in the paper.

  • The staff recommended that the reduced-disclosure IFRS Standard should apply to entities that, at any point during their reporting period, are subsidiaries of a parent presenting consolidated financial statements applying IFRS Standards and that the scope should not be limited to single entity financial statements.

Board members have asked the staff to clarify whether they have considered the parent of subsidiaries who are reporting under accounting standards that are considered equivalent to IFRS Standards in some jurisdictions (e.g. US GAAP). Particularly, Board members asked whether their subsidiaries will be in scope as the paper specifically highlighted only those parents of subsidiaries presenting consolidated financial statements applying IFRS Standards. The staff clarified that for this particular instance, provisions under IFRS 10 will apply regarding the concept of equivalence and will be addressed on a jurisdiction-by-jurisdiction basis.

Board members discussed that potential users should make their individual assessment whether or not they meet the requirements or if they are in scope in order to apply the proposed reduced-disclosure IFRS Standard at the first time adoption. This is to ensure that there is consistency in the application of reporting. Board members also suggested that the application should be as of the reporting date and not at any point in time during the reporting period.

The staff accepted the Board’s suggestion in relation to the application to be as of the reporting period and revised their recommendation. When asked to vote, 11 out of 13 Board members voted in favour of the staff’s recommendation in the paper.

Consultation Document—Discussion Paper or Exposure Draft? (Agenda Paper 31C)

This paper discussed and asked the Board whether to publish a Discussion Paper (DP) or an Exposure Draft (ED) for the project.

Discussion and voting

The staff recommended that the consultation document should be an ED. The main reason for this is that the staff think that the suggested disclosure requirements are best illustrated in an ED to enable stakeholders to assess the proposed disclosure requirements.

When asked to vote, 12 out of 13 Board members voted in favour of the staff’s recommendation in the paper.

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